Erstwhile mechanical engineer and Forbes Executive Editor, with MBA from NYU. In 15 years at Forbes I covered large corporations, money managers and self-made wealth builders---and the myriad trials they all face. Joined the tech-startup ranks in 2014 as co-founder and CFO of Eyes/Only, a luxury-experience portal for high-net-worth individuals. If the mood strikes (and especially if you have a tasty-tequila rec), please send your thoughts to brett@eyeson.ly.

Financial Illiteracy Is Killing Us

As Ben Bernanke and the Federal Reserve dither over what to do about the darkening economy, I’m reminded of, and damn near demoralized by, a scene in “I.O.U.S.A.”, the remarkable and terrifying 2009 documentary about the burgeoning debt crisis in America.

In the scene, a cameraman asks a smattering of people to define “trade deficit.” Here was one of the better answers, delivered by a fresh-faced woman who looked roughly 18 years old: “Deficit usually means…disorder or something. Something is wrong with it. It’s not good.”

Ok, maybe the notion of importing more stuff than we export is a tad abstract. How about the notion of debt? Cameraman to passersby: “How big is the federal debt?” Some responses: “I’m guessing quite a bit”; “3 million”; “I know it’s in the billions.” Try $8.7 trillion. (The film was made in 2009–after bailouts, stimulus packages and healthcare reform, that number is now a few trillion higher, and will soon surpass the $14.5 trillion worth of goods and services this country produces annually.)

The point of “I.O.U.S.A.”—sponsored in part by the Peter G. Peterson Foundation (Mr. Peterson is a billionaire investor and former U.S. Secretary of Commerce)—is to scare us stiff about the consequences of mass fiscal irresponsibility. It succeeds. But it also drives at something deeper: our rotting education system that ultimately led to this problem.

That teenagers are allowed to drive, vote and parent, all while not knowing the difference between an asset and a liability, is nothing short of a travesty. Yet that’s what we have–and we are all paying for it.

I’m thinking now about the $1.3 trillion in delinquent consumer debt–$986 billion of it overdue by at least 90 days. One. Point. Three. Trillion. I’m also thinking about the wide-eyed throngs who signed up for no-doc mortgages they could never in their wildest dreams afford. And then there was the obvious mental mismatch between members of Congress and the Hank Paulsons, Ben Bernankes, Lloyd Blankfeins and their pin-striped ilk that led to a “financial reform” bill with so many holes that two institutions–Fannie Mae and Freddie Mac, which now own or guarantee half the entire mortgage market–fell right through. (Does anyone truly believe that was a fair fight?)

Here’s who should be thinking about all of this: the folks who run our schools. If the U.S. aims to compete–for anything–on a global scale, its populace has to be financially literate. And it isn’t. Not even close.

Consider the atrocious findings in a 2008 report by the Jump$tart Coalition for Personal Financial Literacy (underwritten, ironically enough, by Merrill Lynch). Begun in the 1997-1998 school year, the nationwide biennial survey of 12th graders aimed to determine “the ability of our young people to survive in today’s complex economy.” The 31-question exam touched on topics ranging from credit cards and car insurance to the stock market and home ownership. The results were bad, and are getting worse.

The average grade on the first exam was 57.3%. (You need a score of 60% to pass.) In 2008, it had dipped to 48.3%, with nearly three quarters of the 6,856 students failing. Fewer than 5 out of every 100 earned a “C” (75% or better). While college seniors scored higher on the same exam in 2008, averaging 64.8%, the Jump$tart report points out: “The good news is that most college graduates are financially literate. The bad news is that only 28% of Americans graduate from college, leaving nearly three quarters ill-equipped to make critical financial decisions.”

Here are some more arresting numbers, compiled by the folks at Practicalmoneyskills.com, sponsored by Visa.

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I enjoyed reading this article and think saving is important and understanding money also. I would like to bring Mr Nelson to another point that I recently read on Forbes, how are people supposed to save more spend less and still pay their bills when house prices shot up ten times their value between 1996 and 2006 and that was in a tenth of the time. Also I remember that I had a small car which I could fill up for £30 a week in 2007 and now an even smaller car is costing me E60 per week.

I believe we should all look and think that money is hard to make easy to spend. I remember paying less in the mid 90′s for everything and earning really good wage at the time now I can barely get by because the wages have not increased but everything else has.

Explain how to get paid more in a time where everyone wants more because everything costs more.

Many thanks for your comment. Believe me, I feel your frustration. (Compensation in the publishing industry hasn’t exactly been robust in real terms.)

Food for thought: Maybe a little, er, encouragement to streamline isn’t such a bad thing. About four years ago, I came across a breezy but well-researched book called “The Paradox Of Choice,” written by a psychology professor named Barry Schwartz. It’s all about how having myriad choices—from potato chips to salad dressing—ends up driving us nuts with angst over picking the right one. My colleague Maureen Farrell and I riffed on it a bit here: “Note To Online Retailers: Less Is More” http://www.forbes.com/2006/10/11/google-yahoo-homedepot-ent-sales-cx_bn_1012choice.html.

Money may not go as far. Then again, maybe in some cases it doesn’t have to.

I believe you’re right… We’re not in an era where people cannot prosper – we’re simply living in an age where people might want to consider adjusting their perception of what “prosperity” really means.

I can relate to how you feel. You and me against the world as we have it today. Spend less and earn more is without any doubt a challenge. So what does one do? I would review my spending plan- the budget. What’s in it? You might just be surprised to find extra dollars to make life a bit easier.

Our teachers go to school to learn about how to teach our students math, science, social studies, and other broad topics. Most are not financial experts, or at least capable of lecturing on financial responsibility. Those that are capable, are making much more money in other professions. If we want high quality teachers who are involved in finance, we must start paying our teachers more. People blame teachers for the quality of education the child gets, but it’s not their fault, it’s the fault of the system. Why teach if you can make more in the private sector. Most finance jobs do pay more than teaching. Plus, most high schools require an economics course, but students just don’t feel they have to worry about being financially prepared at that age.

You nailed it. Convincing numerate, engaging, driven people to commit to a life of service is one of the biggest challenges of our time.

That said, I am not suggesting these people have to be able to teach 16-year-olds how to craft options strategies to hedge their stock portfolios. A more modest vision would do—one goal being, say, that students be able to read the business pages and have a clue about what’s going on.

As for most high schools requiring an economics course, I wonder 1) if that is indeed true and 2) what those curricula entail.

I agree that most young kids today argue that it’s far too early to be thinking about financial security. This tells us that we could have done a better job instilling the habit of saving and a set of values on what living with a purpose is all about. But not to worry. It’s not too late. We just need to step up our efforts to create awareness that financial education empowers them to be in control of their financial future.

I am an self-educated and retired option spread trader. Knowing that most high school graduates couldn’t balance a check book (a what?), I have had the desire to design and offer a course in a local high school on basic finance and investing. However, as you can imagine, I was rebuffed with just the idea when I approached a member of the school board. Who are you? What are your credentials? (How about a lifetime and enough in the bank to not worry about retirement)

I know this is late in the posting but I have just found this article. To answer your question no not all school districts require an economics class. Many times they have been taken out because we lack teachers that can supply the information needed. Also, from my old school district economics was an elective that you could chose if you thought too. I personally at 16 did not see the point as I thought my science classes were more important to my future.